TaxTMI 
TaxTMI 
TaxTMI 
2024 (7) TMI 631
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....l), Bangalore ('Ld TPO') and the Hon'ble Dispute Resolution Panel, Bangalore ('Hon'ble DRP') is not correct as it is based on incorrect assessment of interpretation of facts and law and therefore is bad in law and hence, needs to be cancelled. The Appellant also submits that each of the grounds - hereinafter are independent and without prejudice to one another. Based on the facts and in the circumstances of the case, the Ld.AO/Ld.TPO and the Hon'ble DRP have: Transfer Pricing Issues 1. Erred in rejecting the transfer pricing documentation maintained by the Appellant and making adjustments in respect of the following international transactions with its AEs: Provision of software services- Rs. 41,02,20,628; Provision of Information Technology enables Services ('ITeS')- Rs. 14,72,66,223; and Purchase of advertisement space for distribution to the advertisers in India -Rs. 26,76,85,095. 2. Erred in using single year data of companies to determine the arm's length price of the international transactions without considering the fact that the same was not available to the Appellant at the time of complying with the transfer pricing docume....
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..../data which was not available to the Appellant at the time of satisfying the mandatory documentation requirements. 13. Erred in inter-alia using of the following additional filters in undertaking the comparative analysis for rejecting comparable companies having: a) Diminishing revenue; and b) Different year end. 14. Erred in not undertaking an objective comparative analysis and inter-alia selecting the following companies as comparable to the ITES services of the Appellant; a) Accentia Technologies Ltd; b) Eclerx Services Ltd; c) Infosys BPO Ltd; and d) Informed Technologies India Ltd. 15. Erred in not undertaking an objective comparative analysis and inter-alia rejecting the following comparable companies: e) Lee & Nee Software Ltd; and f) Microland Ltd (Call Centre segment). Grounds specific to TP adjustments relating to payment for purchase of advertisement space under the AdWords program. 16. Erred in not undertaking an objective Functions Assets and Risks ('FAR') analysis and concluding that the Appellant owns marketing intangibles. 17. Erred in not appreciating the fact that the Appellant performs a limited role in the provision of web base....
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....land Limited. 28. Having held that the Appellant creates a Dependent Agent Permanent Establishment of Google Ireland Limited in India, erred in attributing business profits, ignoring the fact that the Ld.TPO has determined the arm's length remuneration for the Appellant and hence there was no additional income chargeable to tax in India in the hands of Google Ireland Ltd requiring any deduction of tax at source under Section 195 of the Act and hence no disallowance under section 40(a)(i) of the Act is warranted. 29. Having held that the Appellant was an agent of Google Ireland Ltd. erred in holding that Appellant 'was a person responsible for paying' any amount to GBP3oogle Ireland Ltd. within the meaning of section 195 of the Act. 30. Erred in alternatively holding the amount payable towards purchase of advertisement space under the Agreement as either Royalties or Fees for Technical Services under Article 12 of the India-Ireland Double Taxation Avoidance Agreement. 31. Erred in upholding that the Appellant was required to deduct tax at source from the amount payable by the Appellant to Google Ireland and in view of its failure to deduct tax. the amount of Rs 1....
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....h the TPO had already attributed 50% of residual profit. 6. The DRP erred in holding that for the purposes of bench marking, ITES and Adwords distribution segments are to be treated separately without appreciating that the international transactions relating to ITES and Adwords are connected to each other and cannot be analyzed and evaluated separately for determination of ALP, 7. The DRP erred in directing to adopt profit split method for Adwords distribution segment instead of profit split method without appreciating the fact that the TPO had demonstrated the necessary evidences for the various functions the assessee has performed such as rendering ITES to M/s Google Ireland Ltd., providing marketing services and contribution of marketing tangibles while M/s Google Ireland Ltd. has only contributed the technology related intangibles. 8. The DRP erred in directing the AO to follow the ratio laid down by the Hon'ble Court in the case of Tata Elxsi Limited 349 ITR 98 and exclude telecommunication expenses of Rs. 10,99,83,459/- from the export turnover also while computing the deduction u/s 10A of the I.T. Act, without appreciating the fact that there is no provision in sec....
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....e profit earned out of the said enterprise. 17. The DRP erred in not appreciating the fact that for the lack of a better alternative the total Adwords revenue from the advertisers during the year was considered at Rs. 403,34,38,319/-rather than consider the actual Adwords revenue of Rs. 241,71,64,576/- in line with the global profits of Google Inc USA and the profit represents the entire profit of the enterprise to be in the hands of M/s Google India Pvt. Ltd. as well as M/s Google Ireland 18. The DRP erred in not appreciating the fact that Rs. 117.37 cores being the difference between and the cost has been held to be the escaped profit of the enterprise in India considering the fact that Google Ireland Ltd. has neither filed its return if income nor is willing to admit any tax liability in India. 19. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed of the DRP be reversed and that of the Assessing Officer be restored. 20. The appellate craves leave to add, to alter, to amend or delete any of the grounds that may be at the time of hearing of the appeal." 2.2. The revenue has raised additional grounds for being admitted vide appl....
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....ending the impugned order: * Decision of Hon'ble Mumbai Tribunal in case of CIT vs. Aishwarya K. Rai reported in (2010) 127 ITD 204 * Decision of Hon'ble Pune Tribunal in case of ITO vs. Anant Y. Chavan reported in (2009) 126 TTJ 984 * Decision of Hon'ble Special Bench of Mumbai Tribunal in case of Mahindra & Mahindra Ltd. Vs, DCIT reported in (2010) 122 ITD 216 * Decision of Hon'ble Jodhpur Tribunal in case of (2008) 110 ITD 59 * Decision of Hon'ble Kolkata Tribunal in case of Smt. Bhagwati Devi vs. ITO reported in (1993) 47 ITD 58 * Decision of Hon'ble Delhi Tribunal in case of Ericson A.B. vs. DCIT reported in (2012) 53 SOT 177 We have perused the submissions advanced by both sides in light of records placed before us. 2.6. On a plain reading of section 263 shows that, the Pr. Chief Commissioner or Chief Commissioner may revise order passed by the Assessing Officer, if the same is erroneous insofar as prejudicial to the interest of the revenue. The Explanation 1(a) of section 263 further clarifies that, order of the Assessing Officer in certain cases passed on the direction of certain superior officers can also be subject matter of section 263. The Explanation does....
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....he Appellate Assistant Commissioner, Hon'ble Supreme Court observed that :- '...An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons, The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reaso....
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.... Rs. 128,35,12,263/- 3.2 On receipt of the order u/s.92CA(3), The Ld.AO passed the Draft Order on 04/03/2013 and proposed total addition after incorporating the transfer pricing adjustment proposed by making following additions: * Re-computed deduction u/s.10A of the Act, by reducing telephone charges of Rs. 62,543,937/- and internet charges of Rs. 47,439,522 from export turnover without simultaneously reducing it from the total turnover. This has resulted in reduction on amount of profits eligible for deduction u/s.10A by Rs. 2,70,62,703/-. * Disallowance u/s 40(a)(i) of the Act of Rs. 3,28,20,75,060/- of the Ad Words distribution fee payable to Google Ireland Ltd., Ireland ('Google Ireland'); * Additional income in respect of profits of distribution of Ad Words program of Rs .1,17,37,50,871/-. 3.3 On receipt of the transfer pricing order, the draft assessment order was passed on by incorporating the transfer pricing adjustments proposed. The Ld.AO further disallowed a sum of Rs. 3,28,20,75,060/- u/s 40(a)(ia) of the Act for non-deduction of TDS in respect of the payment made toward the Google AdWords and recomputed the deduction u/s 10A by reducing telephone....
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....nternational transaction of provision of IT services to Google Inc., USA for AY 2010-11 to 2018-19. He submitted that though for the year under consideration, is not covered under the APA, it has been consistently held by various Courts, that the methodology adopted in an APA should be adopted for benchmarking the international transactions, as long as the functions performed, assets utilised, and risks undertaken ("FAR") remain the same among the AEs during the subject year as compared with the years covered under the APA. In support, reliance was placed on the following decisions of the Coordinate Benches of this Tribunal in: * Spencer Stuart (India) Pvt. Ltd. v. ACIT, (ITA No. 7117/Mum/2012, judgment dated 27.06.2018) * Aker Powergas (P.) Ltd. v. DCIT, (2023) 147 taxmann.com 253 (Mumbai - Tribunal) Honeywell Automation India Ltd. v. ACIT, (2019) 101 taxmann.com 6 (Pune - Trib.) He also relied on the decision of Hon'ble Delhi High Court in PCIT v. Springer India (P.) Ltd., reported in (2023) 151 taxmann.com 251. (iv) The Ld. AR submitted that, in the present case, it as an admitted position that the FAR of the AEs qua the international transaction of provision of IT servi....
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....A was approved, and that though the APA was not binding for the assessment year under consideration, it would have persuasive value as per the ratio laid down by various decisions herein above. The Ld.AR thus prayed that for the captioned AY as well, the IT segment be benchmarked by the TPO by taking into account profitability of comparable's with the FAR adopted in the APA. 4.2. On the contrary, the Ld.DR submitted that APA for assessment year AY 2010-11 to 2018-19, was merely a negotiated agreement and could not be relied upon for assessment year under consideration. He also submitted that PA could not be applied retrospectively in the present year as it was beyond the rollback period of APA, if any. The Ld.DR relied on the Circular No.10/2015 dated 10/06/2015 and submitted that an applicant does not have the option to choose the year for which it wants to apply the Rollback provisions. We have perused the submissions advanced by both sides in light of records paced before us. 4.3. We have perused the APA at page 127-153 of the PB. In the APA, we note that, it has been agreed that the functions performed by AEs are very limited and consequent risks assumed are less. The APA ha....
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....iv) there is no change in the law, and (v) required formalities like filing of the return, audit, payment of additional taxes, are also completed. 4.6. We therefore remand the issue back to the Ld.AO/TPO. The Ld.AO/TPO is directed to examine the facts closely and conclude the issue of applicability of APA to the year under consideration in principle. The Ld.AO/TPO is also directed to consider the above cited decisions relied by the Ld.AR reproduced herein above of this Tribunal as well Hon'ble Delhi High Court for the legal proposition of deciding the issue in the light of APA Accordingly Ground No. 9 raised by the assessee stands allowed for statistical purposes. 5. Ground No.14 is raised by the assessee seeking exclusion of following three comparables as chosen by the Ld.TPO with respect to the provision of IT enabled services ("ITeS") to Google Ireland Ltd: Acentia Technologies Ltd., eClerx Services Ltd., Infosys BPO Ltd., 5.1. The Ld.AR submitted that Ld.TPO first applied TNMM for benchmarking the provision of ITeS to GIL, followed by aggregating the same with the international transaction with GIL under the distribution segment (distribution of online a....
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....any is not engaged in provision of a simple service of data processing but is engaged in provision of high-end services. Further, the Company operates under a single primary segment, i.e., "data analytics and process outsourcing services". Therefore, the Company cannot be compared with the Assessee, which is a lowend service provider. Reliance in regard to the above is placed on: (i) Annual Report of the Company for the relevant AY, where the Company has been stated to be a KPO - Page 93 and 141 of the Compilation. (ii) Arctern Consulting (Supra)- Para 22 at page at page 270 of the Compilation. It would also be relevant to point out that the Company has been held to be functionally comparable to the Assessee as regards its IT segment, after recharacterization of the IT services as KPO services (page 92 and 93 of Paper Book dated 06.09.2023). (iii) Infosys BPO Limited 24.41% Business platforms, Customer service outsourcing, finance and accounting, human resource outsourcing, legal process outsourcing (S. No. 7 at Page 83 of Paper Book dated 06.09.2023). The Company is engaged in provision of business process management services to organisations that outsource their business p....
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....onality is concerned, nothing further. We have perused the submissions advanced by both sides in light of records placed before us. 5.8. We agree with the Ld.AR that the APA has persuasive value only insofar as the methodology and functionality is concerned, nothing further. However, we note that the DRP has already directed the separating the ITeS segment with the Distribution segment and to independently benchmark the ITeS segment by adopting TNMM as MAM. The Ld.AO while passing the impugned order computed the ALP of the ITeS segment at the same price as was computed by the Ld.TPO. The assessee is thus aggrieved with such computation of the ALP by the Ld.AO which is without considering the objections of the assessee in respect of following three comparables: Accentia Technologies Ltd. eClerx Services Ltd. Infosys BPO Ltd., 5.9. Before we undertake the exercise of comparability analysis, it is sine qua non to understand the FAR of assessee under ITeS segment, which is as under: 5.10. The above FAR analysis has not been disputed by the revenue authorities for the year under consideration. It is thus an admitted fact that the assessee is a low risk bearing captive se....
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....iversified activity of providing services including analytic services and data process solutions to its global clients. The service provided by Eclerx Services Ltd., is in various areas including capital market and therefore, the services are in the nature of consultancy and end to end support through trade centre including trade confirmation, settlement, transaction, maintenance and analytic and reporting. Thus, it is apparent from the nature of the activity of this company that it is not providing a simple service of data processing but it is engaged in the activit of providing high-end services involving decision making analysis which requires thought process and evaluation of various facts and factors.Functional comparability of this company with that of simple BPO's service providing company has been examined by the Special Bench in the case of Maersk Global Centres (India) (P.) Ltd.v.Asstt. CIT [2014] 43 taxmann.com 100/147 1TD 83 (Mum. - Trib) and the Special Bench found that this company is not comparable with BPO company which are engaged only in low end services of data processing. Accordingly, the Assessing Officer/TPO is directed to exclude Eclerx Services Ltd. from....
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.... in the APA, for the year under consideration as well. We have considered the submissions of both sides in light of the records placed before us. 6.3. We note that the DRP has already directed the separating the ITeS segment with the Distribution segment and to independently benchmark the distribution segment by adopting TNMM as MAM. Further we note that the Ld.AO/TPO has not thereafter bench marked the distribution segment in accordance with the transfer pricing principles. 6.4. We therefore remand the issue of determination of ALP of distribution segment to the LD.AO/TPO. We direct the Ld.AO/TPO to benchmark the distribution segment by adopting TNMM as MAM and to compute the ALP of the transaction in accordance with law. Needless to say that the proper opportunity of being heard must be granted to the assessee. Accordingly Ground No.16-23 raised by the assessee stands allowed for statistical purposes. 7. Ground No. 24 raised by the assessee is regarding Rejection of Books. At the outset it is submitted that this issue is covered in favour of the assessee by the decision of this Tribunal in assessee's own case in ITA No. 374/Bang/2013, vide order dated 31.03.2023 passed for ....
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....he course of hearing drew our attention to the observations of the coordinate bench of the Tribunal where by virtue of Grounds No. 2 to 4 (refer para 176 of order dated 11.05.2018) the issue was decided in favour of the Assessee. It was further brought to our attention that the said finding of this Hon'ble Tribunal was never challenged in appeal by the Department and that this issue was not the subject matter of appeal before the Hon'ble High Court of Karnataka which means that the same has attained finality. From these factual findings and given that there is no adverse finding with regard to the books of accounts, in our view the action of the AO by rejecting the books to recast the P&L with an intention to disallow distribution fee paid by the Assessee to GIL is not tenable. The grounds 2 to 4 with regard to rejection of books of accounts are accordingly held in favour of the assessee." 4.7 Before us, the Ld.Counsel vehemently submitted that for the year under consideration, the revenue authorities did not point out any discrepancy in the books of accounts of the assessee. He also submitted that the facts for A.Y. 2008-09 on this issue are identical with the years under consid....
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....ee is a Dependent Agent of Google Ireland in India, and that as the payment made towards the advertisement space under the AdWords to Google Ireland was without deduction of TDS, for which disallowance u/s. 40(a)(i) was made. 6.3 The Ld. Counsel submitted that Google Ireland did not have any business connection or permanent establishment in India and therefore the payments made by assessee to Google Ireland could not be subjected to tax provisions in India. In support, the Ld. Counsel relied on the decision of Google Ireland in ITA No. 2845/Bang/2017 passed by the Coordinate Bench for A.Y. 2007-08 by order dated 28.02.2023. 6.4 The Ld. Counsel submitted that, in assessee's own case for A.Ys. 2009-10 to 2012-13, Coordinate Bench of this Tribunal has held that there is no permanent establishment of Google Ireland in India based on various discussions therein. The said view has been expressed in a decision reported in Google India Pvt. Ltd. vs. DCIT reported in (2022) 143 taxmann.com 302. "37. Therefore, in terms of the international guidance as stated herein, the position regarding taxability of receipts from sale of online advertisement space is clear. Unless the non- resident....
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....d held as under: "19. Now coming to main issue of disallowance of distribution fee u/s.40(a)(i), we notice that the basis on which the revenue has made the disallowance is that the assessee is the DAPE of GIL. The alternative ground of the revenue is that the payment is being in the nature of Royalty / FTS. We notice that the issue of taxing the distribution fees by treating the same as Royalty / FTS has already settled in favour of the assessee by the coordinate bench in assessee's own case from the perspective of applicability of provisions of section 201 and accordingly there cannot be any disallowance u/s.40(a)(i) on this count. Therefore we in this order will restrict our adjudication to whether the assessee is the DAPE of GIL and whether the assessee is required to deduct tax at source u/s.195 on the impugned payments accordingly." 6.7.1 This Tribunal held that assessee cannot be held to be a dependent agent PE of Google Ireland. This Tribunal further observed as under: "20. To recapitulate the Assessee, during the year under consideration, recorded gross revenue of Rs. 167,32,01,618/- from distributing online advertisement space to advertisers in India, out of which it....
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....r from those which would have been made or imposed if this had not been the case, that agent shall not be considered to be an agent of an independent status for the purpose of this paragraph." 21. The plain reading of the above provision would point out to the following requisites, before an Indian entity can be classified as a DAPE of an Irish entity: (i) The Indian entity is broker, general commission agent or any other agent of the Irish entity and is not acting in the ordinary course of its business and is thus not an agent of independent status, (ii) The activities of such Indian entity are carried out wholly or almost wholly for the Irish entity and the conditions made or imposed between the two in their commercial and financial relations differ from those which would been made or imposed if this had not been the case, and (iii) Such Indian entity: (a) has and habitually exercises in India, an authority to conclude contracts in the name of the Irish entity, unless the activities of such Indian entity fall under any of the provision of Article 5(5) of the DTAA, or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from whic....
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....act entered into by the Assessee and advertisers in India do not contain any clauses that can lead to the conclusion that the Assessee has any authority to bind GIL. 24. We also notice that the CIT(A) though has confirmed the addition on the ground that the assessee is a DAPE of GIL, has given the following findings which is contrary to the same - * Internal Page 12: The CIT(A) noted the observation of the AO that various clauses of the Distribution Agreement between the Assessee and GIL make it clear that the Assessee is required to run the business on its own account. * Para 5.8 at Internal Page 21: The CIT(A) noted the observations of the AO yet again that the AdWords Program was sold by the Assessee for its own account, in its own name, and not as an agent, employee, partner or franchisee of GIL. * Para 6.8(iii) at Internal Page 39: The CIT(A) has categorically observed in this para that the Assessee is not a conduit or an agent of GIL. * Para 7.6(i) at Internal Page 51: The CIT(A) has observed that the Assessee never brought GIL into the picture for all its transactions and that all the payments had been collected by the Assessee in its own name. 25. It is noticed ....
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....nt agent of Google Ireland. Accordingly Ground No.25-29 raised by the stands allowed. 9. Ground No. 30 - 32 is raised by the assessee for treating the payments made to Google Ireland as Royalty/ fees for technical services ("FTS"). At the outset, it is submitted that this issue is covered in favour of the Assessee by decisions of this Tribunal in assessee's own case, the details of which are as under: (i) Google India Pvt. Ltd. v. ACIT, in ITA No. 374/Bang/2013, vide order dated 31.03.2023 for AY 2008-09. (ii) Google India Pvt. Ltd. v. DCIT & Anr, in ITA No. 68/Bang/2015, vide order dated 31.07.2023 for AY 2010-11 to 2011-12 (iii) Google India Pvt. Ltd. v. DCIT, in ITA No. 1513 to 1516/Bang/2013, vide order dated 19.10.2022 for AY 2009-10 to 2012-13 (iv) Google India Pvt. Ltd. v. DCIT, in ITA No. 1190/Bang/2014 and connected appeals, vide order dated 15.12.2022 for AY 2013-14 to 2016-17 (v) Google Ireland Limited v. DCIT, in ITA No. 2845/Bang/2017, vide order dated 28.02.2023 for AY 2007-08 9.1. Reliance is also placed by the Ld.AR on the decision of this Tribunal in assessee's own case in ITA No.68/Bang/2015, vide order dated 31.07.2023 which has followed the view tak....
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....T(A), assessee is in appeal before this Tribunal on the issue of charaterisation of the amount payable to M/s. Google Ireland as royalty and the revenue is in appeal before us in relation to issue as to whether M/s. Google Ireland is the beneficial owner of the amount received from M/s. Google India Ltd. 8. We have heard the rival submissions and perused the materials available on record. Admittedly, this issue came for consideration before this Tribunal in assessee's own case in IT(TP)A No.1513 to 1516/Bang/2013 for the assessment years 2009-10 to 2012-13, the Tribunal vide order dated 19.10.2022 held as under: 13. We have heard rival submissions and perused the material on record. The issues involved in these appeals revolve around the taxability of payments received by GIL from the assessee, who is engaged in the business of online advertisement space to advertisers in India. The Revenue had sought to characterize these payments received by GIL to be royalty as defined in section 9(1)(vi) of the I.T.Act r.w. Article 12(3) of the India-Ireland Double Taxation Avoidance Agreement (India-Ireland DTAA) and thus chargeable to tax in India in the hands of GIL. The case of the ....
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....advertisement is achieved by using appropriate keywords, which can be selected only by the Advertiser. The Google AdWords Program contains a glossary of keywords together with helpful suggestions for the Advertiser to select appropriate keywords for his targeted advertisement. Google AdWords Program also contains a number of computer commands, by which the proposed Advertiser can achieve a more focused and particularised targeting, such as geographical or area targeting (advertisement to be shown only in a particular area, say the State of Karnataka) or period targeting (advertisement to be shown only in a certain period) or time targeting (advertisement to be shown only at certain fixed times during the day) or duration targeting (to be shown only for a fixed time duration each time). All these types of targeting are over and above the usual subject targeting and are achieved by simple computer commands, given by the proposed Advertiser on the Google AdWords Program. All these facilities are available on the Google AdWords Program to any member of the public, free of charge, to enable him to formulate a suitable draft advertisement for his product or service. The only requirement ....
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....re, Block A, 4'" Floor Plot No. 14, Road No.2, Hitec City Layout, Madhapur village, Ranga Reddy District, Hyderabad 500081, Andhra Pradesh. A. WHEREAS, Google Ireland is in the business of developing, licensing, selling, marketing and supporting certain Internet search, advertising system and information organization and management technology products and services to provide information, advertising, search and related services via the Internet, corporate intranets and private networks (collectively, 'Products ''); and . WHEREAS, Google Ireland desires to avail services, relating to, information technology. Information technology enabled services and software development related services from Google India as per the terms and conditions of this Agreement; and C WHEREAS, Google India has expertise in rendering the above services and is willing to render such services for Google Ireland as an independent contractor on the terms and conditions of this Agreement: NOW THEREFORE, in consideration of the mutual covenants and conditions contained herein the parties agree as follows: 1. DEFINITIONS 1. 1 'Affiliate' shall mean any Person, whether de Jure or de....
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....agnetic media or communicated by electronic means. 1.5 "intellectual Property' shall mean all intellectual, proprietary, and/or intangible property rights constituting, embodied in. pertaining to, used in or with respect to the business of Google Ireland, the Products, or the provision of related services and all tangible embodiments hereof, wherever located, including but not limited to the following: (i) all trademarks, trade names, service marks, logos or trade dress, including all registrations and applications therefor; (ii) all copyrights. Moral Rights (as defined below), and other rights in works of authorship including all registrations and applications therefor; (iii) all patents and patent applications. patentable Ideas, Inventions, innovations and improvements; (iv) all know- how and trade secrets; v) all design and code documentation, methodologies, processes, design information, design flows, encoding techniques, applications, product information. Formulae, engineering specifications, technical data, testing procedures, drawings and techniques and other proprietary information and materials of any kind; (vi) all software programs in both source code and object ....
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....India may execute with its subcontractors and Google Ireland shall have the right to pre-approve the terms and conditions of such agreements **** **** ****** 5. OWNERSHIP 5.1 Intellectual Property. Google India acknowledges the exclusive right. title and interest of Google Ireland and its licensors and/or suppliers in and to any and all Confidential Information, Intellectual Property, Software Technology and Documentation, and Google India will not at any time do or cause to be done any act or thing impairing or tending to impair any part of said right, title and interest. Google India acknowledges and agrees that all such Confidential Information, Intellectual Property, Software Technology and Documentation shall remain the exclusive property of Google Ireland and, as applicable, its licensors and/or suppliers. 5. 2 Ownership of Derivative works Works and Software Embodiments. Google India shall keep Google Ireland promptly informed of Google India's development of any Derivative works Works and Software Embodiments and hereby irrevocably agrees that all such Derivative works Works and Software Embodiments shall forever be the sole and exclusive property of Google Ireland ....
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....mance of the activities contemplated by this Agreement. Google India shall cause each of its Representatives with access to the Confidential Information to enter into a nondisclosure agreement in a form approved by Google Ireland. Google India shall use the highest standard of care currently employed by any developer or distributor of high technology products in order to avoid disclosure or misappropriation of such Confidential Information. 6.3 Ownership and Return of Confidential Information. All files, lists, records. documents, drawings, specifications, equipment and computer programs which incorporate or refer to all or a portion of the Confidential Information shall remain the sole property of Go ogle Ireland or its licensors and suppliers. Such materials shall be promptly returned: (i) upon Google Ireland's reasonable request, or (ii) in accordance with Section 12 upon termination of this Agreement, whichever is earlier. **** ********* ****** 12.5 Rights and Duties of Termination. (a) Upon termination or expiration of this Agreement: (i) Google India shall have the right to retain any sums already paid by Google Ireland under this Agreement and Google Ireland shal....
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.... even after using the Google AdWords Program and formulating / displaying an online advertisement, no payment is made by the Advertiser, unless the Ad is clicked by an end-user. Relevant terms and conditions of the Distribution Agreement are as under:- 'Amended and Restated Google AdWords Program Distribution Agreement. This Amended and Restated Google AdWords Program Distribution Agreement ("Agreement'') is entered into as of December 12, 2005 (the "Effective Date'') by and between Google Ireland Limited, with offices at 1st & 2nd Floors Gordon House, Barrow Street, Dublin 4 Ireland ("Google''),and Google Online India Private Limited, a company incorporated under the Indian Companies Act, 1956 and having its registered office at 1st Floor, Prestige Sigma, No. 3 Vittal Mallya Road, Bangalore 560 001 ("Distributor''). WHEREAS 1. Google wishes to enter into the Distribution Agreement for its AdWords Program with Distributor; 2. Whereas Google Inc., a Delaware corporation, and Distributor entered into a Google AdWords Program Distribution Agreement, dated as of December 12, 2005.(the "Prior Agreement"), and Google Inc. assigned its rights and ....
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....tial customers. 1.10 "User Data" means all data and information provided by users via the AdWords Program, including all registration data, names, email addresses, other addresses, contact information, and other identifying information. 2. Appointment of Territory and Distributor Obligations. 2.1 Appointment of Territory. Google appoints Distributor as a non-exclusive authorized Distributor of Go ogle AdWords Program to Advertisers, all under and in accordance with the terms and conditions set forth in this Agreement. Distributor shall conduct its business for its own account, in its own name, aid not as an agent, employee, partner, or franchisee of Google. Distributor may not solicit business from and shall not distribute AdWords Program to (even if unsolicited), any entity that does not have a principal place of business within the Territory. For the avoidance of doubt, an entity's principal place of business will be determined by the place of such entity's registration. All inquiries by any such entity for sale of advertising space shall be referred to the designated Google contact within three (3) business days of receipt by Distributor of such inquiry. 2.2 Dist....
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.... agrees to provide advertising space through the AdWords Program for distribution by Distributor to Advertisers as set forth herein. 3.2 Training. Google agrees to train Distributor. 3.3 Non-Exclusivity. This Agreement shall constitute a non- exclusive relationship between Google and Distributor. ***** ***** ****** 5. Reporting Requirements. 5.1 Information Provided by Google. Google will make available to Distributor online information about Advertiser activity, on an aggregate and individual basis. which information shall contain include (i) the total number of Keywords purchased by Advertisers, (ii) the number of impressions of Advertisers' advertisement delivered across the Google network, (iii) the number of clicks delivered across the Google network for Advertisers' advertisement an (iv) the cost of clicks delivered across the Google network for Advertisers ' advertisement. Distributor must set up AdWords Program advertising accounts in order to receive such online information. Google reserves the right, but has no obligation, to send reports about an Advertiser's activity directly to such Advertiser. If an Advertiser makes a request to Distributor t....
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....paragraph and Sections 1 through 12, inclusive), executed by the parties prior to or concurrently with this Agreement (the "NDA ''), which is attached hereto as Exhibit B, and which is incorporated by reference herein. Each party acknowledges and agrees that it will obtain the other party's prior written approval, which shall include approval of any proposed text, before making any public announcements or communication, including, but not limited to, any press releases, online publishing or direct mailings concerning or related to the existence or terms of this Agreement. In addition. Distributor agrees to waive all claims against and release Google (and its affiliates, partners and representatives) from any claims or losses in connection with any above publications made by Google. 4. User Data. Google owns all right, title, and interest in and to all information and data, including the User Data collected by Google relating to Advertisers in connection with the provision of the AdWords Program. Distributor shall maintain all User Data in accordance with local law and regulation applicable to such data. and shall implement policies and procedures with respect to the U....
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....st Distributor in determining the best solution. Google agrees that it shall provide at least the following minimum levels of service to Distributor: Customer Queries (as defined below), up to the E- Mail Escalation Limit (as defined below), shall be responded to within one (1) business day "Customer Queries" shall mean e-mails sent from Distributor to Google related to Advertiser issues, but excluding general communications between Distributor and Google (e.g. billing questions, training information) and technical issues that only Google can solve. "E-Mail Escalation Limit" shall equal five (5) e- mails per month for everyone hundred (100) Advertisers serviced by Distributor, provided, however that the E-Mail Escalation Limit shall only apply beginning thirty (30) days after the completion of tile training. Timing for responses to Customer Queries from Distributor beyond the E- Mail Escalation Limit shall be at Google's sole discretion. Distributor agrees that Google will have the right, to review samples of communications sent to Advertisers to assess the quality of responses and modify communications accordingly. Google shall also have the right to send questionnaires ....
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....have understood under the circumstances including without limitation those described in Section 2 above, that the disclosure should be treated as confidential whether or not the specific designation "confidential" or any similar designation is used. 4. A Recipient will use the Confidential Information only for the Purpose described above. A Recipient will use the same degree of care. but no less than a reasonable degree of care, as the Recipient uses with respect to its own information of a similar nature to protect the Confidential Information and to prevent: (a) any use of Confidential Information in violation of this agreement; and/or (b) communication of Confidential Information to any unauthorized third parties. Confidential Information may only be disseminated to employees, directors, agents or third party contractors of Recipient with a need to know and who have first signed an agreement with either of the Parties containing confidentiality provisions substantially similar to those set forth herein. ***** ***** ***** 6. This Agreement imposes no obligation upon a Recipient with respect to Confidential Information that: (a) was known to the Recipient before receipt from....
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....st be provided by customer for Google Invoicing This Adwords Agreement ('SA') shall be governed by terms and conditions ('Terms and Conditions) available at the following URL: http.l/ www.google.co. inladsladwordsterms. html All terms contained in the Terms and Conditions are made a part of this SA through incorporation by reference. The signatory of this Service Agreement represents that she has read and agrees to such Terms and Conditions and the terms of SA. There shall be no force or effect to any different or additional terms of any related SA, purchase order or sales document. Google may decide at any lime, in its sole discretion, to change, suspend or discontinue all or any aspect of its advertising programs, including their availability, and shall notify Customer of material changes and discontinuauons. Google shall have no liability for such decision. By signing below, Customer represents and warrants that all client information, including but not limited to credit card information and invoicing information, provided herein is complete and accurate and that no additional information is necessary for payment of Google invoices. Customer's campaign(s) may g....
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....e text elements in advertising creative submitted by Customer. Please carefully read these Google Advertising Agreement terms and conditions ("Agreement') before selecting '1 Accept ' and submitting your selection. By selecting 'I Accept', you agree to be legally bound by the terms of this agreement. If you do not agree to the terms of this agreement please select "1 Decline" and submit your selection. Customer signature Name Title Company Google Signature Name Title Company." 19. The Standard Google India Private Limited Advertising Program Terms are as under: "Google India Private Limited Advertising Program Terms These Google India Private Limited Advertising Program Terms ("Terms") are entered into by, as applicable, the customer signing these Terms or any document that references these Terms or that accepts these Terms electronically ("Customer") and Google India Private Limited ("Google'~. These Terms govern Google's advertising program(s) ("Program") as further described in the applicable Program's frequently asked questions at www.google.com (the "FAQs') and, as applicable, Customer's participation in any such Prog....
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....n certify by contemporaneous documentary evidence that Google posted ads not approved by Customer. With respect to all other advertising, Customer must provide Google with all relevant Creative by the due date set forth in that advertising Program's applicable FAQ or as otherwise communicated by Google. Customer grants Google permission to utilize an automated software program to retrieve and analyze websites associated with the Services for ad quality and serving purposes, unless Customer specifically opts out of the evaluation in a manner specified by Google. Google or Partners may reject or remove any ad or Target any time for any or no reason. Google may modify the Program or these Terms at any time without liability and your use of the Program after notice that Terms have changed indicates acceptance of the Terms. 3. Cancellation. Customer may independently cancel advertising itself online through Customer's account. if any, or, if such online cancellation functionality is not available, with prior written notice to Google, including electronic mail. AdWords online auction-based advertising cancelled online will cease serving upon cancellation. All other advertising ....
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....quences. 3. Disclaimer and Limitation of Liability. To the fullest extent permitted by law. GOOGLE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION FOR NONINFRINGEMENT, SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR ANY PURPOSE. To the fullest extent permitted by law, Google disclaims all guarantees regarding positioning or the levels or timing of (i) costs per click, (ii) click through rates, (iii) availability and delivery of any impressions, Creative, or Targets on any Partner Property, Google Property, or section thereof, (iv) clicks (v) conversions or other results for any ads or Targets (vi) the accuracy of Partner data (e.g. reach, size of audience, demographics or other purported characteristics of audience), and (vii) the adjacency or placement of advertisements within a Program. EXCEPT FOR indemnification AMOUNTS PAYABLE TO THIRD PARTIES HEREUNDER AND CUSTOMER'S BREACHES OF SECTION 1, to the fullest extent permitted by law: (a) NEITHER PARTY WILL BE LIABLE FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY, OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION LOSS OF PROFITS, REVENUE, INTEREST, GOODWILL, LOSS OR CORRUPTION OF DATA OR F....
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....o any party. Customer acknowledges and agrees that any credit card and related billing and payment information that Customer provides to Google may be shared by Google with companies who work on Google's behalf, such as payment processors and/or credit agencies, solely for the purposes of checking credit, effecting payment to Google and servicing Customer's account. Google may also provide information in response to valid legal process, such as subpoenas, search warrants and court orders, or to establish or exercise its legal rights or defend against legal claims. Google shall not be liable for any use or disclosure of such information by such third parties. 8. Indemnification. Customer shall indemnify without limit and defend Google, its Partners, agents, affiliates, and licensors from any third party claim or liability (collectively, "Liabilities"), arising out of Use, Customer's Program use, Targets, Creative and Services and breach of the Agreement. Partners shall be deemed third party beneficiaries of the above Partner indemnity. Without limitation to the generality of the foregoing, Customer shall indemnify Google against any Liabilities or losses arising out of....
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....mitations set forth in this Agreement. The parties agree that all arbitral proceedings conducted pursuant to this Section, including the existence of any arbitral proceedings, information disclosed in the course of such arbitral proceedings, and any settlements, negotiations, discussions, proposals, and awards related thereto shall be considered confidential information and shall not be disclosed to third parties except as required by law or otherwise provided herein. The parties may, however, disclose such information to an appropriate court, as is necessary to seek enforcement of any award rendered by the arbitrator or to seek any interim, provisional, injunctive or conservatory relief pursuant to the terms hereof 10. Miscellaneous. The Agreement must be construed as if both parties jointly wrote it, governed by Indian law. The Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and replaces any other applicable agreements, terms and conditions applicable to the subject matter hereof Any conflicting or additional terms contained in additional documents (e.g. reference to a purchase order number) or oral discuss....
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....ee from the sale of online advertisement space to Indian Advertisers was less than its cost (incurred in connection with its distribution function) plus the specified margin, GIL was required to compensate the assessee for the difference. However, where the revenue recorded by the assessee from the onward sale of online advertisement space to Indian Advertisers was more than the cost plus the specified margin of the assessee, the assessee was required to make the payment to GIL. 21. In the present case, it is not in dispute that the DT AA between India - Ireland is applicable in respect of the payments made by the assessee to Google Ireland. The Hon'ble Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd v CIT (supra) at para 108 of its judgment held as under:- "108. Fourthly, the High Court is not correct in referring to section 9(1)(vi) of the Income-tax Act after considering it in the manner that it has and then applying it to interpret the provisions under the Convention between the Government of the Republic of India and the Government of Ireland for the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with respect to Taxes on Income....
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....casting, any patent, trade mark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft or for information concerning industrial, commercial or scientific experience. " 24. The first limb of the above definition treats consideration for the use of or the right to use any copyright of literary, artistic or scientific work including cinematograph film or films or tapes for radio or television broadcasting as royalty. The computerised advertising program i.e., "Google AdWords Program" is essentially a computer program i.e., a computer software. As per Explanation 3 to section 9(l)(vi), a computer software means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data. It is not in dispute that the Adwords Program is used by the assessee in the present case be it for the purpose of discharging its functions under the distribution agreement or under the services agreement. However, the question for our consideration is whether the copyright in "Google AdWords Program" is u....
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....here will be no difference in the position between the definition of "royalties" in the DTAAs and the definition of "royalty" in Explanation 2(v) of section 9(1)(vi) of the Income-tax Act. 73. Even if we were to consider the ambit of "royalty" only under the Income-tax Act on the footing that none of the DT AAs apply to the facts of these cases, the definition of royalty that is contained in explanation 2 to section 9(1)(vi) of the Income-tax Act would make it clear that there has to be a transfer of "all or any rights" which includes the grant of a licence in respect of any copyright in a literary work. The expression "including the granting of a licence" in clause (v) of explanation 2 to section 9(1)(vi) of the Income-tax Act, would necessarily mean a licence in which transfer is made of an interest in rights "in respect of' copyright, namely, that there is a parting with an interest in any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act. To this extent, there will be no difference between the position under the DTAA and Explanation 2 to section 9(1)(vi) of the Income-tax Act. ***** ******** ****** ....... 97. When, under a non- exclu....
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....ith explanation 4 thereof has not been properly appreciated ***** ******** ****** 117. The conclusions that can be derived on a reading of the aforesaid judgments are as follows: (i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. (ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. (i) Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of the physical substance, in which copyright subsists, gives the purchaser the right to do with it whatever he pleas....
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....ill distribute the AdWords program in accordance with the training provided by Google. As per para 2.3, distributor shall be responsible for uploading all Advertiser information that is required by Google for participation in the Adwords Program. As per para 2.6, distributor will provide after sales services to Advertisers in accordance with the broad instructions, training and standards of Google. The advertising space is provided by GIL through the Adwords program and GIL also agreed to train the distributor. It is specifically agreed that the agreement shall constitute a non exclusive relationship between Google Ireland and distributor. Google Ireland owns all right, title and interest in and to all information and data including the user data collected by it in connection with the provision of the Adwords Program. 27. As per the service level agreement - Exhibit C to distribution agreement, assessee distributor shall be solely responsible for providing all customer services to Advertisers, according to the procedures, and in compliance with standards, provided by Google. All Advertisers shall be instructed by Distributor to contact Distributor directly for support, and not to....
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....ed services to Google Ireland. As regards ownership of intellectual property and ownership of derivate works, it was agreed that all intellectual property shall remain the exclusive property of Google Ireland. The confidential information provided by Google Ireland was to be employed by the assessee in performance of its services under the agreement and it shall remain the sole property of the Google Ireland. The statements recorded from the employees also confirms that the confidential information, software technology and the training documents for providing services under the services agreement are provided by Google Ireland to the assessee. 30. On a consideration of all the above agreements and the facts on record, we find that none of the rights as per section 14(a)/(b) and section 30 of the Copyright Act, 1957 have been transferred by Google Ireland to the assessee in the present case. As held by the Hon'ble Apex Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT & Anr. (supra), mere use of or right to use a computer program without any transfer of underlying copyright in it as per section 14(a)/(b) or section 30 of the Copyright Act, 1....
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.... further when there is no consideration payable for such use of trade mark, trade name etc, the consideration cannot be characterised as royalty. Applying the said principle, in the present case, use of Google Brand Features etc are de hors any consideration payable to Google Ireland and further they are incidental and ancillary for achieving the main purpose of marketing and distributing the Google Adwords Program. Hence, the lower authorities were not right in treating the payments as Royalty. 32. As regards the applicability of 'use of or right to use industrial, commercial or scientific equipment" the CIT(A) held that the assessee cannot be said to have gained right to use any scientific equipment, since, Google Ireland has not parted with the copyright it holds in the Adwords program and hence it cannot be said that any kind of technical knowhow has been transferred to the assessee company. The CIT(A) was not in agreement with the AO on the above issue without prejudice to his view in holding that the remitted amount is royalty on different grounds. The revenue has not challenged the said finding of CIT(A). Hence, the impugned payments cannot be regarded as made for '....
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....ed by Yahoo India to Yahoo Hong Kong was the subject matter of dispute before the Tribunal. The AO as well as CIT(A) held such payments to be royalty and in that manner, disallowed the expenditure in the hands of Yahoo India under section 40(a) of the Act. The Tribunal, in second appeal, held that banner advertisement hosting services did not involve use or right to use any industrial, commercial, or scientific equipment and no such use was granted by Yahoo Hong Kong. In that manner, the Tribunal set aside the findings of the AO and CIT(A), wherein the subject payments were characterised as royalty. (ii) Pinstorm (supra): Pinstorm was engaged in buying online advertisement space for onward re- sale to an advertiser, much like GIPL in the present case. For such purpose, Pinstorm made payments to GIL, which were disallowed by the AO and CIT(A) under section 40(a)(i) of the Act, on the premise that the said payments were taxable in India. While the AO held the said payments to be fees for technical services ("FTS"), the CIT(A) held them to be royalty. The Tribunal relied on the decision in Yahoo (supra) to delete the disallowance. It was also observed by the Tribunal that the said p....
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....e, made payments to Facebook Ireland Ltd., for online advertising. The AO held the said payments to be royalty and in the alternate, as FTS. The CIT(A) upheld the order of the AO. The Tribunal followed the decision in Urban Ladder (supra), while setting aside the order of the CIT(A). (vii) Play Games (supra): Play games is engaged in the business of providing a platform for online gaming. It had made payments to Facebook Ireland Ltd. for online advertising. The AO and CIT(A) in this case as well, held that payments to be taxable in India. The Hon'ble Tribunal observed that Play Games did not get any right to modify/ deal with the servers, which belonged to Facebook Ireland Ltd., in any manner. It was also observed inter alia that the said servers, which hosted online advertisements, were located outside India and that Facebook Ireland Ltd. did not have a PE in India. In that manner, the Tribunal set aside the order of the CIT(A) and held the payments in question to be neither royalty, nor FTS. (viii) Matrimony.com (supra): Matrimony.com in this case, made payments to Facebook Ireland Ltd. for online advertising. The AO in this case as well, disallowed the said payments unde....
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....tisements, including advertisements where the payment is based on number of clicks (i.e., CPC basis), TAG recommended taxability of such payments under Article 7 of the relevant DTAA. The said Article 7 deals with "business profits" and not royalty. Business profits under Article 7 are taxable only where the non-resident has a PE in India. 36. It is important to note that TAG was set up by OECD and its recommendation on changes to the OECD commentary were accepted by OECD. As per the recent decision of the Hon'ble Supreme Court in Engineering Analysis, (supra), OECD commentary is a necessary aid for the interpretation of provisions contained in DTAA. In fact, the High-Powered Committee ("HPC") on electronic commerce and taxation, set up by the Central Board of Direct Taxes ("CBDT") had also accepted the view taken by TAG and recommended taxing consideration flowing for online advertisement under Article 7, and not Article 12 of the relevant DTAA. 37. Therefore, in terms of the international guidance as stated herein, the position regarding taxability of receipts from sale of online advertisement space is clear. Unless the non- resident, who is engaged in sale of online adve....
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....ven in case of M/s. Google Ireland Ltd. vs. DCIT in ITA No. 2845/Bang/2017 by order dated 28.02.2023, this Tribunal has taken a view that the payment received by the non-resident assessee on sale of online advertisement space directly from the advertisers in India is not taxable in the hands of the non-resident assessee. This Tribunal observed and held as under in the case of the payee being Google Ireland in order otcome to such conclusion. "8. We have heard the rival contentions and perused the material on record. The assessee in grounds of appeal has raised 35 grounds. Ground Nos. 13 to 15 relates to taxability of payments received by the assessee from GIPL as per terms of the distribution agreement dated 12.12.2005 as well as the payments received by the assessee directly from Indian advertisers. As regards chargeability of income received from GIPL is concerned we notice that in the hands of GIPL, the AO had show caused why the payment made by it to GIL M/s. Google Ireland Ltd. (assessee in this case) is not in the nature of royalty. The GIPL vide its reply dated 15.02.2013 explained that the payment made by it to GIL is in the nature of advertisement fees and not ....
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....y subject based on the search made by the user. The link to various websites related to the search are provided in the search result. Additionally, Google LLC, USA has also developed a computerised advertising program known as Google AdWords Program. Google Ireland Ltd (GIL) is the exclusive licensee and principal operator of the computerised advertising program i.e., "Google AdWords Program" for the whole world outside the USA. The Google AdWords program displays advertisements on Google's search engine. It has a separate website in which the advertisers have to agree to certain terms and conditions including the consideration payable for the targeted Advertisements and provide appropriate keywords on searching of which the websites of the advertisers would be displayed on top of the Google search engine with the abbreviation "Ad". For instance, pursuant to the search query "Fresh Flower Delivery", website of "Ferns N Petals" is listed two times among websites of various other businesses. The listing of the website of "Ferns N Petals" at the top of the list is a sponsored link accompanied by a small abbreviation "Ad", and the other listing is an organic search result as it doe....
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....bal advertisements are reviewed by GIL through its automated system located outside India. Remaining global advertisements, which are not successfully reviewed by the automated system, are subjected to a manual review. For carrying out manual review, the balance 6% (approx.) global advertisements are forwarded to one of service centres of GIL's group entities, located in USA, Dublin, China, Korea, Japan, and India. An advertisement in English by an Indian Advertiser may go for manual review to any of these service centres. These service centres carry out the activity of manual review on a cost-plus basis. The assessee also carries out this activity under the ITES segment as per the services agreement dated 1.4.2004 entered into with GIL. The relevant terms and conditions of this agreement are as under: `THIS SERVICES AGREEMENT (''Agreement'') is entered into as of 1st April, 2004 (the "Effective Date''), by and between Google Ireland Limited, a corporation organized under the laws of Ireland ("Ireland'') and having its office at Seagrave House, 19120 Earlsfort Terrace, Dublin 02, Ireland, and Google Online India Private Limited, a company incor....
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....ture; or (iii) due to their character or nature, a reasonable person in a like position and under like circumstances would treat them as secret and confidential. Confidential Information does not include information: (i) that is in the public domain through no fault of the receiving party, (ii) that was previously known by receiving party, as established by written records of the receiving party prior to receipt of such information from the providing party or (iii) that was lawfully obtained by the receiving party from a third party without any obligations of confidentiality to Google Ireland. 1.3 "Derivative works Work" shall mean (i) for copyrightable or copyrighted material, any modification. derivative works work (as defined in 17 USC. §101), translation, abridgment, revision or other form in which such material may be recast, transformed or adapted, (ii) for patentable or patented material, any improvement thereon. and (iii) for material protected by trade secret, any new material derived from such existing trade secret material, including new material which may be protected to copyright, patent and/or trade secret. M/s. Google Ireland Ltd. 1.4 "Documentation" shall....
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....eration, maintenance and service of such Products. **** **** ***** 2. SERVICES 2.1 Request Google India hereby agrees to perform certain information technology, information technology enabled services and software development services, as requested by Google Ireland from time to time, with respect to Products, utilizing Google Ireland Software Technology and other appropriate technology from Google Ireland or third parties which may be properly used for these purposes. Google Ireland will specify M/s. Google Ireland Ltd. the information technology, information technology enabled services and software development services to be performed, the Products to be worked on or used, the time line for completion and the specific results to be achieved (the Services"). 2.2 Performance. Upon agreement between Google Ireland and Google India as to the Services and completion date for a particular Services project, Google India will perform the Services. Google India agrees to use commercially reasonable efforts to perform the Services in a timely fashion and as described to it by Google Ireland. Google India may not subcontract work under this Agreement unless specifically and to the....
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....re Embodiments that cannot be assigned to Google Ireland under law. Google M/s. Google Ireland Ltd. India hereby waives the enforcement of such rights; and if Google India has any rights which cannot be assigned or waived under law, Google India hereby grants to Google Ireland an exclusive, irrevocable, perpetual, worldwide, transferable, folly paid licence, with rights to sub license and assign, to all such rights. Google India shall enter into agreements with its Representatives sufficient to permit Google India to make the foregoing grant of rights. ****** ****** ***** 6. CONFIDENTIAL INFORMATION 6.1 Access and Use of Confidential Information. During the course of performance of this Agreement, Google Ireland will disclose certain Confidential Information to Google India solely to permit Google India to perform its obligations under this Agreement. Except as otherwise provided in this Agreement, Google India agrees that such Confidential Information shall be kept secret by Google India during the term of this agreement and after the expiration hereof Google India shall refrain from using or exploiting any and all Confidential Information for any purposes or activities ot....
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....rtisement space. However, to accommodate Indian Advertiser(s) desirous to pay in Indian Rupees instead of foreign currency, GIL entered into the Google AdWords Program Distribution Agreement dated 12.12.2005 with the-assessee, whereunder the assessee was appointed as a non-exclusive distributor of online advertisement space in India In terms thereof, the assessee set up its "Distribution Segment" for carrying out purchase and re-sale of online advertisement space to Indian Advertisers. However, Indian Advertisers who were willing to pay in foreign currency, continued to transact directly with GIL. The Google AdWords Program and its features remains the same whether the Advertiser in India purchases online advertisement space from GIL or its authorised distributor i.e., the assessee. The only difference is where Indian Advertiser purchases from the assessee, it pays in INR whereas where Indian advertiser purchases from GIL, it pays in foreign currency. 17. In a case where the assessee is involved in purchase and re- sale of online advertisement space to Advertiser and if such Advertiser finds it difficult to use Google AdWords Program, he can get guidance and assistance from the....
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....e advertising program currently offered by Google under the name ''AdWords.'' 1.3 "Brand Features" means the trade names. trademarks, service marks, logos, domain names, and other distinctive brand features of each party, respectively, as secured by such party from time to time. 1.4 "Designated Contact" means those contacts designated by each party as the point of contact or contacts for a particular function area related to this Agreement. 1.5 "Google Brand Features" means the Google trade names, trademarks, service marks, logos, domain names, and other distinctive brand features, with some but not all examples at "http://www.google. comipermissionsltrademarks.html" (or such other URL that Google may provide from time to time), and such other trade names, trademarks, service marks, logos, domain names, or other distinctive brand features that Google may provide to Distributor for use solely under this Agreement. 1.6 "Intellectual Property Rights" shall mean any and all rights existing from time to time under patent law, copyright law, semiconductor chip protection law, moral rights law, trade secret law, trademark law, unfair M/s. Google Ireland Ltd. competiti....
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....or termination under section 9.3. 2.3 AdWords Program Sign Up Process. Distributor shall be responsible for uploading all Advertiser information that is required by Google for participation in the AdWords Program. 2.4 Licences; Approvals. Distributor shall be responsible for obtaining all licences and permits and for satisfying all formalities as may be required to enter into this Agreement and to perform its obligations in accordance with then- prevailing laws and regulations, including without limitation those necessary to enable Distributor to make payments to Google in US dollars. Distributor will promptly secure all governmental approvals as M/s. Google Ireland Ltd. may be required in the Territory or performance of its obligations under this Agreement. 2.5 Compliance with United States and Other Applicable Law; Conduct of Business. Distributor will comply with all United States and local laws and regulations applicable to the distributor of the goods and services. including but not limited to the Foreign Corrupt Practices Act and US regulations of international boycotts. Distributor shall (a) conduct business in a manner that reflects favorably at all times on the AdWor....
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.... containing the Brand Features) to Google for written approval prior to release to the public. Furthermore, Distributor agrees to adhere to Google's then- current Brand Features use guidelines, and any content referenced or included therein, which may be found at the following URL: http://www.google.comlpermissionslguidelines.html (or such other URL that Google may provide from time to time) and to such other guidelines or restrictions provided by Google in writing to Distributor in connection herewith. Except as set forth in this Agreement, Distributor shall not acquire any right, title or interest in or to the Google Brand Features. All use by Google of Distributor Brand features (including any goodwill associated therewith shall inure to the benefit of Distributor and all use by Distributor of Go ogle Brand Features (including any goodwill associated therewith) shall inure to the benefit of Google. No party shall challenge or assist others to challenge the Brand Features of the other party (except to protect such party's rights with respect to its own Brand Features) or the registration thereof by the other party, nor shall either party attempt to register any Brand Feat....
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.... termination pursuant to Section 9.2 or Section 9.3 above. Google will continue to serve advertisements as provided in this Agreement up to the earlier date to occur of (x) the date that the services provided by Google exhaust any amounts prepaid by Distributor, or (y) the date that is thirty (30) days after expiration or termination of the Agreement. Termination or expiration of this Agreement. in part or in whole. shall not limit either party from pursuing other remedies available to it, nor shall Distributor be relieved of its obligation to pay all charges that have accrued or are otherwise owed under this Agreement. Termination of this Agreement does not prevent Distributor from participating in the AdWords Program pursuant to the general terms and conditions made publicly available by Google from time to time in its sole discretion. ***** ***** ***** EXHIBIT C Service Level Agreement Distributor shall be solely responsible for providing all customer services to Advertisers. according to the procedures, and in compliance with standards, provided by Google. All Advertisers shall be instructed by Distributor to contact Distributor directly for support and not to communic....
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.... Parties enter into an agreement related to such business transaction, to fulfill each Party's confidentiality obligations to the extent the terms set forth below are incorporated therein (the ''Purpose''). The Parties have entered into this Agreement to protect the confidentiality of information in accordance with the following terms: 1. The Effective Date of this Agreement is December 12, 2005. 2. In connection with the Purpose, a Party may disclose certain information it considers confidential and/or proprietary ("Confidential Information '') to the other Party including, but not limited to, tangible, intangible, visual, electronic, present, or future information such as: (a) trade secrets; (b) financial information, including pricing; (c) technical information, including research, development, procedures, algorithms, data, designs. and know-how; (d) business information, including operations, planning, marketing interests, and products; (e) the terms of any agreement entered into between the Parties and the discussions, negotiations and proposals related thereto; and (f) information acquired during any facilities tours. 3. The Party receiving C....
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....e to the Process unless the Discloser has: (a) requested protection from the legal or governmental authority requiring the Process and such request has been denied, (b) consented in writing to the production or disclosure of the Confidential Information in response to the Process, or (c) taken no action to protect its interest in the Confidential Information within 14 business days after receipt of notice from the Recipient of its obligation to produce or disclose confidential information in response to the Process ***** ***** ******* 11. No Party acquires any intellectual property rights under II Agreement (including, but not limited to, patent, copyright, and trademark rights) except the limited rights necessary to carry out the Purpose as forth in this Agreement. 12. Each Party acknowledges that damages for improper disclosure Confidential Information may be irreparable; therefore, the injured Party is entitled to seek equitable relief, including injunction and preliminary injunction, in addition to all other remedies available to it. 18. The standard agreement entered into between the assessee and the advertisers is as under:- Google Advertising Agreement Customer Inv....
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....tself insecure with respect to Customer's ability to meet its financial obligations under this SA, Google shall have the right to require pre-payment of the total amount due for the SA in advance of the Target Start Date or as otherwise requested by Google. Customer must remit all payments under this SA to Google by the due date indicated on the Invoice(s). In the event of nonpayment, Google reserves the right to immediately terminate this SA upon written notice to Customer and immediately suspend the entire Customer account. Late payments are subject to interest payments as set forth in the Terms and Conditions. Methods of Billing: Monthly Invoicing: Customer will be billed at the end of the month, based on the actual number of clicks or other billing methods Customer may choose to participate in as described in the FAQ (e.g. cost per impression programs). Customer's credit must first be approved by Google in order for this billing method to apply. Prepayment: Customer will pay the total agreement budget prior to any campaign launch. Acceptance and terms of prepayment are at Google's sole discretion. Prepayment does not obligate Google to deliver any Ad Words ads....
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...."). Policies may be modified any time. Customer shall direct only to Google communications regarding Customer ads on Partner Properties. Some Program features are identified as "Beta," "Ad Experiment," or otherwise unsupported ("Beta Features"). To the fullest extent permitted by law, Beta Features are provided "as is" and at Customer's option and risk. Customer shall not disclose to any third party any information from Beta Features, existence of non-public Beta Features or access to Beta Features. Google may, at its sole discretion and without any prior consent from the Customer, modify ads to comply with any Policies. 2. The Program: Customer is solely responsible for all: (a) ad targeting options and keywords (collectively "Targets") and all ad content, ad information, and ad URLs ("Creative"), whether generated by or for Customer; and (b) web sites. services and landing pages which Creative links or directs viewers to, and advertised services and products (collectively "Services"). Customer shall protect any Customer passwords and takes full responsibility for Customer's own, and third party, use of M/s. Google Ireland Ltd. any Customer accounts. Ads may be placed ....
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....ams at any time without liability. Sections I, 2, 3,5, 6, 7, 8, and 9 will survive any expiration or termination of this Agreement. 4. Prohibited Uses; License Grant; Representations and Warranties. Customer shall not, and shall not authorize any party to: (a) generate automated, fraudulent or otherwise invalid impressions, inquiries, conversions, clicks or other actions; (b) use any automated means or form of scraping or data extraction to access, query or otherwise collect Google advertising related information from any Adwords website or property except as expressly permitted by Google; or (c) advertise anything illegal or engage in any illegal or fraudulent business practice. Customer represents and warrants that it holds and hereby grants Google and Partners all rights (including without limitation any copyright, trademark, patent. publicity or other rights) in Creative. Services and M/s. Google Ireland Ltd. Targets needed for Google and Partner to operate Google's advertising programs for Customer (including without limitation any rights needed to host, cache, route, transmit, store, copy, modify, distribute, perform. display, reformat. excerpt, analyze, and create al....
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.... of the party, including but not limited to acts of God, government, terrorism, natural disaster, labor conditions and power failures. 6. Agency. Customer represents and warrants that (a) it is authorized to act on behalf of and has bound to this Agreement any third party for which Customer advertises (a "Principal'') (b) as between Principals and Customer, the Principal owns any rights to Program information in M/s. Google Ireland Ltd. connection with those advertisements, and (c) Customer shall not disclose Principal's Program information to any other party without Principal's consent. 7. Payment Customer shall be responsible for all charges up to the amount of each 10, or as set in an online account, and shall pay all charges in Indian Rupees or in such other currency as agreed to in writing by the parties. Unless agreed to by the parties in writing, Customer shall pay all charges in accordance with the applicable 10 or Program FAQ. Late payments bear interest at the rate of 1.5% per month (or the highest rate permitted by law, if less). Charges are exclusive of taxes, cesses or other applicable levies. Customer is responsible for paying (y) all applicable ta....
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....essly agree and submit. The arbitration will be submitted to the International Centre for Dispute Resolution of the American Arbitration Association ("AAA") and conducted in accordance M/s. Google Ireland Ltd. with the Commercial Arbitration Rules of the AAA in force as of the date of this Agreement ("Rules''). Pre-hearing information exchange shall be limited to the reasonable production of relevant, non- privileged documents and carried out expeditiously. There will be one arbitrator selected by mutual agreement of the Parties. The arbitrator will not act as amiable compositeur or ex aequo et bono. It is the intent of the parties that, barring extraordinary circumstances, arbitration proceedings will be concluded within 60 days from the date the arbitrator is appointed. The arbitrator may extend this time limit in the interests of justice. Failure to adhere to this time limit shall not constitute a basis for challenging the award. The arbitration will be conducted in English and the place of arbitration will be Bangalore, India. Either party may, without waiving any remedy under this Agreement, apply to the arbitrator and/or any court having jurisdiction any interim, pr....
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....RMZ Infinity - Tower E, Old Madras Road, 4th Floor, Bangalore, 560016, India with a copy to Legal M/s. Google Ireland Ltd. Department, via confirmed facsimile, with a copy sent via first class or air mail or overnight courier, and are deemed given upon receipt. Notice to Customer may be effected by sending email to the email address specified in Customer's account, or by posting a message to Customer's account interface, and is deemed received when sent (for email) or no more than 15 days after having been posted (for messages in Customer's account interface). A waiver of any default is not a waiver of any subsequent default. Unenforceable provisions will be modified 10 reflect the parties' intention and only to the extent necessary to make them enforceable, and remaining provisions of the Agreement will remain in full effect. Customer may not assign any of its rights hereunder and any such attempt is void. Google and Customer and Google and Partners are not legal partners or agents, but are independent contractors. In the event that these Terms or an Advertising Program expire or is terminated, Google shall not be obligated to return any materials to Customer. ....
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....erm "royalty" in Article 12(3) of the India - Ireland DT AA override the definition of "royalty" as provided in Explanation 2 to section 9(l)(vi) of the Act by virtue of section 90(2). Therefore, the definition of the term "royalty" under the India - Ireland DTAA being more beneficial to the assessee must only be considered in these appeals. The findings of the AO and CIT(A) as regards the characterisation of the payments to Google Ireland as 'Royalty' under section 9(l)(vi) of the Act is therefore not relevant and consequently correctness of these findings need not be adjudicated in these appeals. Similarly, we do not think it is necessary to decide whether the services agreement and distribution agreement are interlinked or complementary to each other. ITES services are enabling the overall business and not directly related to generating revenue from Adword Program in India. Revenue is generated by end customers clicking on link and not because of ITES services. Even if it is interlinked, the internal tools / intangibles / software of Google Ireland are admittedly not transferred to assessee. The assessee has only right to use these for rendering ITES services. Applying r....
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....y issue on software payments into four categories as under:- Category 1: Computer software purchased by an end-user, resident in India, from a foreign non- resident supplier/manufacturer. Category 2: Purchase of computer software by resident Indian companies that act as distributors/resellers, from foreign non- resident suppliers for the purpose reselling the same to resident Indian users. Category 3: Purchase of software by foreign non- resident distributor from a foreign non-resident supplier for the purpose of reselling the same to Indian distributors or end-users. Category 4: Computer software affixed onto a hardware and sold as an integrated unit/equipment by foreign non-resident suppliers to Indian distributors or end-users. 25. The Supreme Court made a reference to the relevant provisions of the Copyright Act and on the interpretation of the same, it accepted the difference between a copyright right and copyrighted article. The important observations of the Supreme Court are summarized as follows:- "71. The transfer of "all or any rights (including the granting of a licence) M/s. Google Ireland Ltd. in respect of any copyright", in the context of computer software, i....
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....e under an EULA, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in sections 14(a) and 14(b) of the Copyright Act. **** ******** ****** 100. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income-tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income-tax Act read with explanation 4 thereof and Article 3(2) of the DTAA. Further, the M/s. Google Ireland Ltd. expression "copyright" has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply in the Contracting States must be applied unless there is any repugnancy to the terms of the DTAA. For all these reasons, the determination of the AAR in Citrix Systems Asia Pacific Pty. Ltd (supra) does not st....
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....n 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in section 14(a) and 14(b) of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of M/s. Google Ireland Ltd. the "licensed" computer software product over which the licensee has no exclusive rights, no copyright is parted with and consequently, no infringement takes place, as is recognized by section 52(l)(aa) of the Copyright Act. It makes no difference whether the end-user is enabled to use computer software that is customised to its specifications or otherwise. (v) A non-exclusive, non-transferable licence, merely enabling the use of a copyright product, is in the nature of restrictive conditions which are ancillary to such use, and cannot be construed as a licence to enjoy all or any of the enumerated rights mentioned in section 14 of the Copyright Act. or create any interest in any such rights so as to attract section 30 of the Copyright Act. (vi) The right to reproduce and the right to use computer software are distinct and separate rights, as has been recognized in State Bank of India (supra) (see paragr....
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....at the issues that cannot immediately be resolved by Distributor based on training and procedures provided under the Agreement must be communicated promptly to Google Ireland by Distributor / assessee, and Google Ireland will assist assessee / Distributor in determining the best solution. It was also agreed that the distributor agrees that Google Ireland will have the right, to review samples of communications sent to Advertisers to assess the quality of responses and modify communications accordingly. Google Ireland shall also have the right to send questionnaires to Distributor's customers to ensure that Distributor is providing an adequate level of service. 28. As per the standard Advertising program terms, the advertiser is solely responsible for all ad targeting options, keywords and all ad content. The advertiser represents and warrants that it holds and hereby grants Google and Partners all rights (including without limitation any copyright, trademark, patent, publicity or other rights) in Creative, Services and Targets needed for Google and Partner to operate Google's advertising programs for Customer (including without limitation any rights needed to host, cache,....
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.... copyrights in favour of the assessee company. Hence, the impugned payments cannot be characterised as 'Royalty' under the DTAA. 31. The lower authorities have held that the assessee has been granted the use of or right to use trademarks, other brand features and the process owned by Google Ireland for the purpose of distribution of Adwords program and consequently the sums payable to Google Ireland are royalty. As per Article 12 of India - Ireland DTAA, consideration for the use of or right to use any patent, trade mark, design or model, plan, secret formula or process is regarded as royalty. In the present case, as per the distribution agreement, "Google Brand Features" means the Google trade names, trademarks, service marks, logos, domain names, and other distinctive brand features, with some but not all examples at"http://www.google.com/permissions/trademarks. html" (or such other URL that Google may provide from time to time), and such other trade names, trademarks, service marks, logos, domain names, or other distinctive brand features that Google may provide to Distributor for use solely under this M/s. Google Ireland Ltd. Agreement. As per para 6 of the distribu....
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.... has not characterised the impugned payments as a consideration for the above. In any case, CIT(A) has given a finding that it cannot be said that any kind of technical knowhow has been transferred to the assessee company. This has not been challenged by the revenue. M/s. Google Ireland Ltd. 33. Thus on an overall analysis of the entire facts on record, we hold that the impugned payments cannot be regarded as royalty under the India - Ireland DTAA. It is true that the Google Adword program was commercially and profitably exploited in a commercial sense and profitable manner in India to generate revenues from Indian customers or advertisers. This is the business or commercial aspect of the transaction. However, the stand of the lower authorities that the impugned payments are in the nature of Royalty cannot be upheld especially under Article 12 of the India - Ireland DTAA merely because the marketing, distribution and ITES activities are carried out in India and revenues are generated from India or from Indian Advertisers. As held by the Supreme Court in the case of UOI v Azadi Bachao Andolan [2003] 263 ITR 706, at page 763: "We are unable to agree with the submissions that an a....
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....sing, to generate more business for itself. In this case again, the AO had disallowed the payments made by Right Florist for online advertising under section 40(a)(i) of the Act. However, the CIT(A) reversed the said decision on the ground that none of the recipients of the payments had a PE in India. The Tribunal, in Department's appeal, upheld the order of the CIT(A), while observing that the decisions in Yahoo (supra) and Pinstorm (supra) were authorities in support of the proposition that payment by the Indian arm of a foreign owner of search engine portal, in connection with online advertising, is not in the nature of royalty as per section 9(1)(vi) of the Act. In this decision, the Tribunal also discussed the modalities involved in the online advertising business, in the context of Google Search Engine. (iv) Inception Business (supra): In this case the assessee was engaged in the business of brand management as well as posting advertisements in the social portal on behalf of their clients. The AO held the payments made by it for that purpose to Facebook Ireland Ltd., a non- resident, to be taxable in India. The CIT(A) upheld the order of the AO. The Tribunal relied on t....
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....gital Media (supra): ESPN India in this case, entered into a re-seller agreement with ESPN UK, for the resale of online advertisement space. In terms thereof, ESPN India purchased online advertisement space for re-sale to Indian advertisers. For this purchase, it made payments to ESPN UK, which were characterised as royalty by the AO. The CIT(A) upheld the order of the AO. The Tribunal, in second appeal, set aside the order of the CIT(A), while observing that ESPN India was merely making payment under the re- seller agreement towards purchase of online advertisement space. It was also observed that a website is not a tangible property and is certainly not a high-tech equipment. It was also observed that the reliance of the AO and CIT(A) on the decision in Verizon Communications Singapore Pte Ltd. v. ITO, (2014) 361 ITR 575 (Madras High Court) was misplaced, since the same had been overruled by the Hon'ble Supreme Court in the decision in Engineering Analysis (supra). (x) Interactive Avenues (supra): Interactive Avenues is an internet advertising agency, which places online advertisements on behalf of its clients. The payments in this case were made to Facebook Ireland Ltd., w....
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....t read with the relevant DTAA. 38. The above view is also supported by insertion of provisions related to Equalisation Levy (EL) by Finance Act, 2016. The root for the emergence of the EL can be traced to the dynamic business models that have the ability to transcend the link between an income producing activity and a specific location since these business are carried in the cyber place. The PE definition presently is based upon the physical presence criteria. The new business models also created challenges in characterizing the nature of payment - whether the payment is for services or for any IPR and hence royalty or whether it represents pure business profits. Various ITAT decisions, as discussed above, have held that income from sale of advertisement space on a website is not taxable in India if there is no PE of the foreign enterprise in India. It was held that such income is not to be regarded as royalty or FTS. Such tax challenges is addressed by the introduction of EL. Section 165 of the Finance Act, 2016 provides for charge of EL at 6% on consideration for specified services. Section 164(i) of Finance Act, 2016 provides that "specified service" means online advertisement....
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....e any industrial, commercial, or scientific equipment and no such use was granted by Yahoo Hong Kong. In that manner, the Tribunal set aside the findings of the AO and CIT(A), wherein the subject payments were characterised as royalty. (ii) Pinstorm (supra): Pinstorm was engaged in buying online advertisement space for onward re- sale to an advertiser, much like GIPL in the present case. For such purpose, Pinstorm made payments to GIL, which were disallowed by the AO and CIT(A) under section 40(a)(i) of the Act, on the premise that the said payments were taxable in India. While the AO held the said payments to be fees for technical services ("FTS"), the CIT(A) held them to be royalty. The Tribunal relied on the decision in Yahoo (supra) to delete the disallowance. It was also observed by the Tribunal that the said payments were business profits, which were not taxable in India, since GIL did not have a PE in India. (iii) Right Florists (supra): Right Florist was a florist who used Google Search Engine for online advertising, to generate more business for itself. In this case again, the AO had disallowed the payments made by Right Florist for online advertising under section 40(....
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....siness of providing a platform for online gaming. It had made payments to Facebook Ireland Ltd. for online advertising. The AO and CIT(A) in this case as well, held that payments to be taxable in India. The Hon'ble Tribunal observed that Play Games did not get any right to modify/ deal with the servers, which belonged to Facebook Ireland Ltd., in any manner. It was also observed inter alia that the said servers, which hosted online advertisements, were located outside India and that Facebook Ireland Ltd. did not have a PE in India. In that manner, the Tribunal set aside the order of the CIT(A) and held the payments in question to be neither royalty, nor FTS. (viii) Matrimony.com (supra): Matrimony.com in this case, made payments to Facebook Ireland Ltd. for online advertising. The AO in this case as well, disallowed the said payments under section 40(a)(i) of the Act, which action was upheld by the CIT(A). The Tribunal followed the decision in Urban Ladder (supra), while deleting the said disallowance. (ix) ESPN Digital Media (supra): ESPN India in this case, entered into a re-seller agreement with ESPN UK, for the resale of online advertisement space. In terms thereof, ESP....
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....he term 'fees for technical services" means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention." 7.5 It is submitted that the definition of FTS under the Act and India-Ireland tax treaty is identically worded and therefore in order to fall within the scope of FTS, the consideration paid ought to be for rendition of managerial or technical or consultancy services. 7.6 The Ld. Counsel submitted that the Ld.AO in passing the draft assessment order has observed and held as under: "Similarly, payments made to M/s. Google Ireland Ltd. are also liable to be taxed either as royalties or Fees for technical services. For this purpose, there is no need to establish the PE of the recipient in India. It is abundantly clear as per Article 12 of DTAA whereby such royalties and fees for technical services have been defined in great detail. Google has been a search engine which has provided an online solution for all kinds of Internet based queries. It has almost created a ....
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....r held that as there is no PE, that is established in India of the Google Ireland, such payment could not have been held to be taxable in India. 7.10 The Ld.Counsel referred to the reliance placed by Coordinate Bench of this Tribunal while deciding the issue in case of Google Ireland Ltd. (supra) (which already has been reproduced hereinabove). For the sake of reference and at the cost of repetition, the same is reproduced hereinbelow: "10. As regards receipt of Rs.51,09,74,532/- on sale of advertisement space from Indian customers other than GIPL we find it is covered in favour of the assessee by the following orders of the Tribunal: (i) Yahoo (supra): Department of Tourism of India hired the services of Yahoo India for uploading, displaying, and hosting its banner advertisement on the Yahoo portal, which was operated by Yahoo Hong Kong. For the said purposes Yahoo India engaged Yahoo Hong Kong for uploading and displaying the said banner advertisement. Pursuant to such arrangement, Yahoo India received consideration from Department of Tourism of India and after retaining its margin, the balance was remitted to Yahoo Hong Kong. The payment remitted by Yahoo India to Yahoo....
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....on behalf of their clients. The AO held the payments made by it for that purpose to Facebook Ireland Ltd., a non-resident, to be taxable in India. The CIT(A) upheld the order of the AO. The Tribunal relied on the decision in Yahoo (supra), Pinstorm (supra), Right Florists (supra), while setting aside the order of the AO/ CIT(A) and holding that the payments for purchase of online advertisement space were not taxable in India. (v) Urban Ladder (supra): The assessee in this case, made payments to Facebook Ireland Ltd., for online advertising. The AO M/s. Google Ireland Ltd. held the said payments to be royalty. The CIT(A) upheld the order of the AO. However, while doing so, the CIT(A) relied upon certain functional aspects of advertisement system qua Patent Number US20040059708A1 as well as US7778872B2. These two patents are held by Google LLC., USA in connection with the Google AdWords Program hereto. The Tribunal, set aside the order of the CIT(A), while following the decision of the Hon'ble Supreme Court in Engineering Analysis (supra). The Hon'ble Tribunal also relied on the decisions in Yahoo (supra), Pinstorm (supra) and Right Florists (supra). (vi) Myntra Designs....
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....ring Analysis (supra). (x) Interactive Avenues (supra): Interactive Avenues is an internet advertising agency, which places online advertisements on behalf of its clients. The payments in this case were made to Facebook Ireland Ltd., which were disallowed by the AO and the CIT(A). The Tribunal observed that Interactive Avenues was utilising Google Search Engine amongst others, to buy online advertisement space on behalf of its clients. Be that as it may, the Tribunal set aside the order of the CIT(A) and held that the payments in question could not be characterised as royalty, while relying on the decisions in Urban Ladder (supra) and Play Games (supra)" 7.11 He thus submitted that the Google AdWords Program is a standard facility for display of online advertisements on web properties, like the Google search engine, provided to those who pay for it and in that manner, it is not a custom- made and the amount paid / payable in lieu thereof, does not partake the character of FTS. Reliance was also placed on the decision in Skycell Communications Ltd. vs. DCIT reported in (2001) 119 Taxman 496 (Madras High Court). 7.12. It is the submission of the Ld.Counsel that, the revenue has....
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....Ground nos. 25-29 raised by the stands allowed. 10. Ground No. 33 - 34 raised by the assessee on Levy of interest under section 234B of the Income-tax Act, 1961 ("Act") and the initiation of penalty proceedings under section 271(1)(c) of the Act: As these grounds being consequential in nature they need not be adjudicated. Accordingly Ground No.33-34 raised by the stands allowed. Revenue appeal in IT(TP)A No.191/Bang/2023: 11. At the outset, the Ld.AR submitted that Ground No.1-7 raised by assessee has been considered by coordinate bench of this in case of Google Ireland, the recipient of the services wherein it has been held that the services rendered by assessee to Google Ireland is not in the nature of FTS. 12. Ground No.8-9 raised by the revenue alleging the 10 A deduction allowed by the Ld.AO as per the DRP direction. It is submitted that this issue is covered by decision of this Tribunal in assessee's own case in ITA No.68/Bang/2015, vide order dated 31.07.2023. It is further submitted that this issue is no longer res integra by virtue of decision of Hon'ble Supreme Court in case of CIT vs. HCL Technologies reported in (2018) 404 ITR 719, that has upheld the decision of H....
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....re issue to the Ld.TPO for computing the ALP of IT segment de novo as per the directions, the issue of comparables also stands remanded. The comparables are therefore to be selected to be in accordance with law. Accordingly Grounds 10-11 becomes infructuous and accordingly dismissed. 14. Ground No.12-18 are raised in respect of relief given by the Ld.CIT(A) in respect of attribution of additional profits. As we have already held while considering Issue 4 that assessee cannot be held to be a dependent agent permanent establishment of Google Ireland, the income earned by Google Ireland cannot be taxed in India as business profits. Under such circumstances, the issue of attribution does not arise. Accordingly Ground No.12-18 raised by the revenue becomes infructuous. 15. Ground Nos.19-20 raised by the revenue are general in nature and does not require adjudication. 16. The additional grounds raised by the revenue alleging the 10A deduction allowed by the Ld.AO on the income earned under ITeS segment. The Ld.DR submitted that the Ld.AO allowed deduction under section 10A in respect of the income earned by the assessee under ITeS segment without carrying out necessary verification....